Litigation Quarterly Advisor – Winter 2025

The end of the Chevron Doctrine brought about by the Supreme Court’s Loper Bright Enterprises v Raimondo, 144 S. Ct. 2244 (2024) decision in June 2024 set up the health care industry for a seismic shift. Given that much of “health law” may be found in regulatory guidance, it was a question of when, not if, the Loper Bright decision would start to impact court decisions in contested health law matters. That time seems to have arrived.

What is the Stark Law?

The Stark Law prohibits a physician from referring patients to an entity in which they have a financial relationship, and prohibits the entity from submitting claims for reimbursement to the Centers for Medicare and Medicaid Services (CMS) resulting from such referrals unless the arrangement between the parties meets an applicable exception. Billing Medicare for those services and/or failing to return overpayments received as a result of those services can lead to liability under the False Claims Act (FCA) – which includes substantial per claim civil monetary penalties and treble damages.

Practitioners have come to heavily rely on CMS’s comments for clarity and guidance when applying exceptions and structuring financial arrangements to comply with the Stark Law, given the numerous exceptions that apply. Although many of the exceptions are statutory, those exceptions are further refined and interpreted in underlying regulations. Loper Bright stands to shake up this regulatory landscape.

The Impact of Loper Bright

In Loper Bright, the Supreme Court concluded, in effect, that courts no longer have to defer to agency regulations
– like those by CMS, which have governed the Stark Law
– when interpreting laws. As such, federal courts must

agency interpretations, and determine the statute’s “single, best meaning.”

For healthcare providers, this ruling stands to shift how Stark Law violations are handled, as courts may no longer lean on CMS’s comments and regulations to make decisions. In the recent case of United States ex rel. Kyer v. Thomas Health Systems in the Southern District of West Virginia, the judge overseeing a whistleblower lawsuit asked both parties to reconsider their arguments in light of the Loper Bright decision. Specifically, the judge sought briefing from the parties as to whether Stark Law regulations cited in the case are consistent with the statute itself, stating that it could not determine whether Kyer has stated a claim for which relief can be granted until the court fully understands the statutory requirements under Stark Law. This case remains pending, and is an early example of the fact that regulatory deference is no longer the norm with regard to the Stark Law.

Takeaways for Healthcare Providers?

The Loper Bright ruling could create significant uncertainty around Stark Law enforcement. Here are a few things to keep in mind as this unfolds:

1. No More Blind Reliance on CMS Regulations: Post-Loper Bright, courts will be less inclined to automatically follow CMS guidance, as seen in Kyer. Providers should reexamine their financial relationships with physicians and seek legal guidance as to whether those relationships will hold up in this new landscape.

2. Increased Litigation: With courts now responsible for their own interpretations of Stark Law, more and more legal challenges will spring up.

3. Opportunity for Stronger Defense Strategies: Providers facing lawsuits for alleged Stark Law violations may have new defense strategies available. As in Kyer, there could be opportunities to challenge the interpretations that led to the enforcement action in the first place.

In a unanimous decision, the New Jersey Supreme Court vacated a $24.3 million award to a group of neurosurgeons over their claim that Valley Hospital was acting in bad faith when it signed an exclusive agreement with a competing surgical group. While the Supreme Court reversed the prior award for several reasons this article focuses on the interplay of whether hospital bylaws constitute a contract.

The plaintiffs, 11 neurosurgeons with New Jersey Brain and Spine Center, provided on-call coverage in Valley Hospital’s emergency department. They filed a suit challenging Valley’s decision to enter into an exclusive agreement with a competing neurosurgical practice for unassigned emergency patients and access to specialized neurosurgery equipment. Plaintiffs argued that Valley’s decision to grant the exclusive agreement to the other group was based on improper reasons which they claimed was a revocation of their hospital privileges.

Ultimately the Supreme Court established that a hospital’s medical staff bylaws do not constitute a traditional contract that support a claim for the breach of the implied covenant of good faith and fair dealing. The Court explained that with hospital bylaws unlike traditional contracts there is no mutual assent, no offer and no acceptance. Further, Valley’s bylaws existed prior to the plaintiff neurosurgeons obtaining privileges at the hospital.

Finally, the Supreme Court pointed out that hospitals maintain broad discretionary power in making administrative decisions related to healthcare because

A unanimous jury awarded Horizon Blue Cross Blue Shield $2.4 million in a lawsuit against three healthcare providers for fraudulently billing for services that were not actually performed. The lawsuit was filed against a massage therapist, C. Samuel Verghese, physician James Claire, D.O., and Integrative Medicine & Biofeedback Clinic (“IMBC”). Horizon alleged that it paid over $2.6 million in fraudulently submitted claims for diagnostic electroencephalogram (EEG) tests and comprehensive evaluation and management (E&M) visits.

In submitting the fraudulent claims, the defendants materially misrepresented that these services were performed, were medically necessary, and were ordered by persons who were properly licensed and qualified to provide medical diagnostic and treatment services. The defendants’ fraudulent scheme included the following practices: (i) repeatedly submitting claims for EEGs that they never performed; (ii) submitting claims for high-level E&M services performed in connection with those sham EEGs; (iii) submitting claims misrepresenting that Dr. Claire, a licensed medical professional, had performed the services when the service was actually performed by an unlicensed employee; and (iv) submitting claims for services that were ineligible for reimbursement. Horizon also alleged that Verghese, who is not a licensed medical professional, held himself out as a doctor on several websites and illegally owned a

In McGinty, et al. v. Zheng, et al., the Appellate Division held that an arbitration provision that was electronically agreed to was valid and enforceable against a couple injured in a motor vehicle accident with an Uber driver.

The plaintiff had signed up for an Uber account in 2015. At that time, she agreed to Uber’s Terms of Use which included an Arbitration Agreement. Uber’s Terms were modified in January 2021 and again in December 2021. Plaintiff did not dispute that she agreed to the January 2021 modification of terms. January’s modifications were presented to her in-app blocking interface that required her to check a box indicating that she had reviewed and agreed to the terms of use and then click “confirm.”

The December 2021 modifications were presented with a pop-up blocking screen that blocked the use of the app until the updated terms of use were agreed to. The popup screen contained two hyperlinks that took the user to the updated policies and a box that when checked, indicated that the user had reviewed and agreed to the terms, and that the user was at least 18 years old. Below the checkbox was a button marked “confirm.” The December modification contained an arbitration

For more information, contact:
Thomas Kamvosoulis | 973.403.3130 | tkamvosoulis@bracheichler.com
Andrew R. Macklin | 973.447.9670 | amacklin@bracheichler.com
Susan Schulman | 973.364.8333 | sschulman@bracheichler.com

The qui tam provisions of the False Claims Act (“FCA” or “Act”) permit private whistleblowers, or “relators” to file suit in the name of the United States against those who defrauded the government. Historically, constitutional challenges to this framework have failed. However, a judge in U.S. ex rel. Zafirov v. Florida Medical Assocs., LLC Case No: 8:19-cv-01236 (M.D. Fla. 2024) recently issued a decision which, if upheld on appeal, could upend the qui tam framework that has been in place for over 160 years.

On September 30, 2024, Judge Kathryn Mizelle ruled that the qui tam provisions were unconstitutional. Judge Mizelle held that a relator’s “enforcement authority” makes them an “Officer of the United States” which can only be appointed by the President, courts, or heads of departments under the Appointments Clause in Article II of the Constitution. Relators, however, obtain the ability to sue on behalf of the government from the qui tam provisions of the FCA. Accordingly, Judge Mizelle ruled that the provisions which permit relators to sue on behalf of the United States without the appropriate governmental appointment are unconstitutional.

Prior to Zafirov, multiple courts, including four U.S. Circuit Courts of Appeals, rejected this theory. Judge Mizelle dismissed these decisions as “non-binding” and claimed they did not analyze all of the relevant issues. Judge Mizelle supported her decision by citing Justice Clarence Thomas’s dissent in U.S. ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419 (2023). Justice Clarence’s dissent invited this theory by stating “[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.” Justices Kavanaugh’s and Barrett’s concurring opinion in Polansky also stated that this constitutional challenge was a “substantial argument[].”

It is nearly certain that the government will vigorously challenge Zafirov on appeal. The government heavily relies on the qui tam provisions to recover funds lost through fraud, reclaiming over $2.3 billion in settlements and judgments from qui tam suits in 2023 alone. The government previewed its challenge to Zafirov in an October 18, 2024 “Statement of Interest” filed in a District of New Jersey FCA case, U.S. ex rel. Penelow v.

For more information, contact:
Bob Kasolas | 973.403.3139 | bkasolas@bracheichler.com
Riza I. Dagli | 973.403.3103 | rdagli@bracheichler.com
Eric Boden | 973.403.3101 | eboden@bracheichler.com

• Thomas Kamvosoulis and Paul J. DeMartino Jr. successfully obtained summary judgment on behalf of a neurosurgeon dismissing claims by a management services organization, which sought to enforce a restrictive covenant. The arbitrator found that the restrictive covenant provision specifically carved out patient care from its restrictions and was otherwise overly broad and unenforceable. The arbitrator also found that the management services organization had failed to establish any measurable damages in granting summary judgment in favor of the neurosurgeon.

• Anthony Rainone and Eric Magnelli successfully represented their client an industrial painting contractor, against The International Painters and Allied Trades Industry Pension Fund (“Fund”). The Fund came after our client claiming that it was a successor to a long ago failed company that was a member of the union. We filed a declaratory judgment in federal court to protect our client. The Judge granted our SJ motion and ruled that our client was not a successor to the old, failed company, and had no exposure (past or future) to the Funds awarding our client attorneys’ fees and costs (client spent over $150k) in the order.

• Bob Kasolas and Eric Boden received a trial victory from the Superior Court of New Jersey. We represented the Defendant in a case brought by Ameream LLC about leases in the American Dream Mall. At a bench trial, the Court accepted our argument that the leases terminated and our client had no liability.

• Dan Leone settled a very difficult case in Bergen County with the assistance of legal assistant Lisa Cardillo for a whopping $1.6 million.